LENDING; Leaving No Stone Unturned

Lending plays such a huge role in our housing industry; it’s always a changing myriad of programs, underwriting criteria and even organizations.  Sometimes as a consultant one of the biggest holes I see that needs to be constantly evaluated is the Lending arm.  No one builder has the same lending issues but let me tell you when you need sales, you must turn over the stones to your lending, as you just might discover extra sales hiding there.

In our past market when sales, buyers and lender programs were abundant it was fine to have only one main lender doing your business.  Builders were quick to sign up for joint ventures, locking them into one lending relationship, so they might get a piece of the action.   Because of the abundance in the market, values and programs you usually had a pretty high capture rate by the primary lender, thus providing better services and a nice cash flow.

Now we move to the market of 2011 and beyond.  In this market we are trying to apply the same principles to a very different market.  In this market there is a lack of buyers, a lack of lending, a lack of programs and a lack of knowledge out there of the programs.  Lending changed so drastically in such a quick period of time, many Sales People didn’t keep up and now just hand over their deals to the lender to see if it sticks or not.  We don’t like that, we like the Sales Person who is educated and knows the programs available so they will be able to recognize a sale when it presents itself. If you add to that scenario a builder lender with limited resources, inexperienced loan officers and limited programs, you might be missing some sales.  Unfortunately builder owned mortgage companies and or joint ventures typically pay a smaller commission scale to in-house loan officer, because they are “fed” the business.  The problem with this thinking is, you get what you pay for.  By paying them on the low end of the scale you attract lower end performers.

In this market a builder is smart to have several, reputable lenders working for them not only to drive the hunger to get deals done but to have a more abundant source of programs.  Because as this market recovers new programs will slowly surface.  Typically they surface at the investor banks or smaller banks and as they become popular the larger banks will adapt them into their fold.  You will hear things like, this lender could do it this way, but that lender didn’t think to structure the deal that way.  Or this lender can go down to a 550 FICO when that lender can only go to 600. The option ARMs and 5/1 Arms and the stated income loans originated first, at savings and loans, then grew to larger lenders.  All were good loans by the way, created for a reason and the right buyer, they just let the guidelines get too loose and the loans got abused.

Here are some examples of deals missed and made by an in-house builder lender. I have too many examples to give you but let me break down a few.

Example 1: An in house lender turned down a VA past short sale client because they didn’t have a two year time lapse, after the short sale.  Once it got turned down and they went elsewhere, another major lender picked it up and made a deal of it, because they could close that VA loan one year after a short sale.  The builder in house lender missed it.

Example 2: While on site coaching an Agent, the in-house lender put a deal together for an Agent and said if the client paid of $20,000.00 in debt the ratios would work.  The Agent hung up the phone looked at me and said, “This deal will never work now, my clients cannot pay off this kind of debt.”   I asked the Agent to pull the credit, I looked at it, identified some different debt they could payoff to achieve the same ratio results with only having to pay off $5,000.00 in debt.  The Agent called back the in house builder lender and said, “what if they pay this and that debt off, would the deal still work for you?”  The lender replied sure, ratios are the same.  He was then able to write that deal!  The in house builder lender didn’t even take the time to figure out which debt made more sense for the buyer to payoff.  That builder would have lost a deal that day, had I not be on site coaching his Agent.

Example 3: Recently my Niece was buying a home and was referred to the “Builders Lender”, who could not do her loan because she is self-employed and complicated but she has great credit and money in the bank.  She was referred to two other small investor banks, who have stated income loans reappearing.  They require 30% and 40% down payment and great credit, but it appears the smaller investor banks are starting to come out with these much needed programs for self-employed buyers.  In order to find out and utilize programs like this, you must have relationships with a few small investor type banks or be able to broker to them.    It happens every time we come out of a recession or down market.  Everything tightens up dramatically and then as it stabilizes,  slowly but surely you find new programs popping up here and there as we recover…but you must be on your game to realize them.

Agent Education

Last but not least, you must have Agent education on loan programs from a variety of different lenders.  We are hosting a Lender Forum at our local BIA, that will have various lenders on the panel to speak to some of their products that are different from the rest and can help educate Agents on what’s out there.  You must educate your Agents so they can realize a possible deal standing in front of them.  They must know about what’s out there and who has it, then when a client comes in and gives their scenario, they don’t just send them down the road basing their knowledge on one lenders programs.  They should have a healthy variety to choose from.  They should also know how to put a deal together and qualify a prospect just in case Example 2 happens.  With knowledge, they will know the lender isn’t doing their very best and there are other options to make the deal work.

The moral of this story is to keep your options open in this market.  There is nothing like a little competition to make people perform better.  When you are turning up every stone looking for ways to find sales, let’s not forget about the boulders you have that have loan deals hiding under them.  By having access to multiple lending sources, programs and people, you will have the best of all worlds.  Call us for coaching and training on this subject,  because we can help with deals and  in this market every deal counts!

By Shirleen Von Hoffmann President and Sales Coach of Home Builders Edge and Vortex Sales Coaching Copyright 2011